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Bill ackman
Bryan Bedder / Getty Images for the New York Times
Bill Ackman’s Pershing Square Capital Management made a splash in late June, when he asked to raise a $ 3 billion blank check company with some unconventional terms.
Voluntary initial public offering investors are clearly plentiful: On Monday, the hedge fund resubmitted its prospectus to the Securities and Exchange Commission, and is now trying to raise $ 4 billion for its special-purpose acquisition company, or SPAC. A list could come as soon as this week.
It would make Pershing Square Tontine Holdings the highest IPO SPAC ever earned, in what is shaping up to be a great year for the previously dark asset class. SPACs raise money from OPI investors, which are then deposited into a trust until SPAC sponsors identify a merger or acquisition target. The combination with the company makes it public, and SPAC’s shares are converted into shares in the new company.
This year there has been an avalanche of SPAC OPCs and SPAC offers. Even before Ackman’s gigantic SPAC, and despite the IPO market freeze during the turmoil of March and April, SPACs have almost reached the record year of 2019. Forty have already been made public, raising $ 12.5 billion in earnings, and 16 others have been filed for IPO in the near future, according to SPAC Insider.
SPAC’s mergers have brought some of the most popular stocks of 2020 to market, including Nikola (ticker: NKLA), DraftKings (DKNG) and Virgin Galactic Holdings (SPCE). Other deals have had a lower profile, but have also been generous for investors, such as Vertiv Holdings (VRT) or Vivint Smart Home (VVNT). Several SPACs have recently announced combinations that have already been successful with investors long before their closure, including Turtle Acquisition (SHLL) with Hyliion and Spartan Energy (SPAQ) with Fisker.
Pershing Square Tontine Holdings was already a giant with its original offer of $ 3 billion, even more so if it can raise $ 4 billion. Pershing Square is also committed to purchasing at least $ 1 billion and up to $ 3 billion of additional units at the time of a combination
That could give SPAC a war chest of up to $ 7 billion to reach a deal, aimed at being a minority position in a “private, large-cap, high-quality, and growth company” that can then bypass the traditional route. from IPO.
The SPAC breaks several conventions for the structure, starting with its bid price of 200 million units at $ 20, each of which consists of one common share and a fraction of a court order. SPACs tend to trade at $ 10 per unit, and include between a quarter and a full court order that can be enforced at $ 11.50 after the merger.
Pershing Square Tontine Holdings OPO investors will receive a ninth exercisable bond order at $ 23 in advance. Shareholders who do not exchange their shares at the time of the SPAC agreement will receive at least two other ninety parts of an order, bringing their total to one third. (Cash raised in a SPAC IPO is deposited in a trust until a merger is complete, at which time common shares can also be exchanged for a proportional share of the SPAC trust instead of participating in the settlement.)
That’s where the Tontine part comes in. It refers to a seventeenth-century annuity in which income is shared by a group of investors, and each individual’s share of the pot increases as other investors die. The number of warrants to be distributed at the time of the Pershing Square Tontine Holdings merger is set at 44,444,444 (in addition to 22,222,222 at the time of the IPO). Therefore, the more shareholders exchange for cash, the more guarantees they will have for investors participating in the agreement. Pershing Square argues that those terms will attract more long-term, fundamental-focused shareholders rather than arbitrational or transactional investors, who often represent a large portion of SPAC investors.
Pershing Square Tontine Holdings will be listed on the New York Stock Exchange under the tics PSTH for its shares and PSTH.WS for its warrants.
Also in the S-1 updated Monday was a description of the Pershing Square venture capital. The hedge fund will pay $ 65 million for sponsor warrants, of which $ 35 million will go to the SPAC trust to offset subscription costs and raise the total to $ 4 billion. The rest will be used to cover operating expenses while the SPAC team searches for a target. SPAC directors, excluding Ackman, will purchase an additional $ 2.8 million of director guarantees with similar terms.
The sponsor and principal guarantees are worth $ 24 and can be sold or exercised three years after a merger. If Pershing Square Tontine Holdings is unable to close a deal (or get shareholder approval for an extension) within 24 months, the trust is liquidated and returned to shareholders, while the guarantees expire worthless. That roughly $ 68 million is the skin of Pershing Square in the game as it disappears without a full deal.
If the sponsor and director guarantees become exercisable, they would represent 6.21% of the company’s ordinary shares after the combination, according to the filing. That would be a relatively small dilution for other shareholders. Many SPACs are structured to allow their sponsors to buy up to 20% of the shares at a greatly discounted price, sometimes called founding shares.
The fund believes that the terms Tontine and warrant will give you an advantage in making a deal. Judging from an expanded presentation of an already huge offering, IPO investors seem to be on board.
Write to Nicholas Jasinski at [email protected]
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